Removing Barriers
Vanguard’s annual report, “How America Saves,” reveals that employers are increasingly bolstering retirement plans with personalized financial services such as advice. The report also shows that automatic enrollment removes a barrier to entry for employees saving for retirement. Auto enrollment in 401(k) plans is helping Americans save for retirement in record numbers, according to the study. Moreover, participation rates in 401(k) plans for which the asset management firm serves as record keeper have reached an all-time high of 83%.
Forty-one percent of all plans offered advisory services last year, according to the study, and that rose to 81% for plans with more than 5,000 employees. Altogether, nearly three in four plan participants now have access to advice, such as a robo-advisor or guidance from a certified financial planner.
Elsewhere, the report shows that automatic enrollment makes 401(k) plans more appealing for retirement savers. Nearly 58% of plans, and 76% of plans with at least 1,000 participants, have already adopted this design.
Importance of Bespoke Advice
Financials professionals agree that automatic solutions revolutionized retirement planning over the last decade. However, investment success depends not only on the funds you hold but also the advice you get on those funds. The next frontier of retirement savings will be advanced by personalized advice from financial experts that helps investors reach their long-term goals.
Automation also helps retirement savers stay the course during market uncertainty. According to the report, a quarter of participants saved at least 10% of their income for retirement and the average deferral rate hit a historic high of 7.4%.
Strategies Employed by Retirement Savers
Finally, the report shows participant trading dramatically declining over the last 15 years, with just 6% of participants trading last year. This is likely attributable to the increased adoption of target-date funds and more retirement savers employing buy-and-hold strategies.
By mixing several different types of stocks, bonds and other investments in a single solution, TDFs help participants prepare for retirement. Designed to be long-term investments for individuals with particular retirement dates in mind, target-date funds are often preferred by plan participants to other options. TDFs have a special appeal because they offer a lifelong managed investment strategy that should remain appropriate to an investor’s risk profile even if left unreviewed.
As a passive, long-term investment strategy that creates a stable portfolio over a long period of time to generate higher returns, buy-and-hold strategy is appealing to investors who know how to wait and be patient. Instead of trading shares based on stock market timing, investors buy stocks and hold onto them despite any market fluctuation. This strategy has been proven to return exponential gains on invested capital. Thus, a large number of plan participants tend to use this investment strategy.
At RiXtrema, we provide financial advisors with prospecting software for plans all over the country. Our tools use qualified plan data taken from 5500 filings and open sources, allowing us to reach out to plan executives with marketing letters. We comply with fiduciary regulations, and can measure the risk of every client’s portfolio. Recently we have launched new AI tools. You can find all of RiXtrema’s products on our main website rixtrema.com and sign up for a free demo of any tool!
